variable annuity

An annuity with payments to the annuitant that vary depending upon the investment success of a separate investment account underlying the annuity. Because the invested funds are primarily in common stock, this annuity offers greater potential rewards and greater attendant risks than annuities supported by fixed-income securities. Compare fixed annuity. See also hybrid annuity.

Variable annuity.

A variable annuity is an insurance company product designed to allow you to accumulate retirement savings.

When you purchase a variable annuity, either with a lump sum or over time, you allocate the premiums you pay among the various separate account funds offered in your annuity contract.

The tax-deferred return on your variable annuity fluctuates with the performance of the underlying investments in your separate account funds, sometimes called investment portfolios or subaccounts.

You may purchase qualified variable annuities, which are offered as options within an employer sponsored retirement savings plan, or nonqualified variable annuities. Nonqualified annuities are those you purchase on your own, often to supplement other retirement savings.

You can also choose an individual retirement annuity, which resembles an individual retirement account except that the underlying investments are separate account funds.

Among the appeals of both qualified and nonqualified variable annuities are the promise of a stream of income for life if you annuitize the assets in your account and the right to make tax-exempt transfers among separate account funds.

If you purchase a nonqualified annuity, there are no federal limits on the annual amounts you can invest, no requirement that you purchase the annuity with earned income, and no minimum required withdrawals beginning at age 70 1/2.

However, with both types of variable annuities, withdrawals before you reach age 59 1/2 may be subject to a 10% early withdrawal tax penalty.

However, Pamela Bonds, investment representative at Edward Jones in Olivette, Missouri, encouraged Cozy and Shirley Marks, both 71, to upgrade to a new variable annuity last year because it gave them a chance to meet their multiple goals while offering security.

In addition, the unbundled design of our variable annuity products allows advisers the flexibility to build a product with only those living benefits and investment options that fit their clients' individual financial situations.

Both "regular brokerage account" investments and those within a variable annuity provide the investor with investment diversification and professional investment management, in exchange for a management fee.

Ultimately, variable annuity programs may be forced to reduce expenses to be competitive with competing products, as increased capital and investment return targets are required to support the additional risk characteristics of the business, the study said.

Jefferson National Life Insurance Company (Jefferson National) now offers Monument Advisor, the only variable annuity with a flat-insurance fee, through Commonwealth Financial Network's Preferred Portfolio Services (PPS), a comprehensive program which provides the entire infrastructure needed to operate virtually any type of fee-based asset management practice.

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